GET PREQUALIFIED

The very first steps of the homebuying process can also be the most confusing. Where do you start? How do you know your purchasing power? Can you even afford to take out a mortgage? If you’re wondering what’s next, it might be a good time to seek mortgage prequalification.

MORTGAGE PREQUALIFICATION

By reviewing basic information about your financial background and employment history, lenders are able to gauge whether your situation is suitable for a mortgage.

Prequalification establishes how large of a loan you’ll be able to borrow if you decide to move forward with the mortgage process. While it does not guarantee a loan will be approved, prequalification does act as a great starting place to establish financial needs and outline how much money can be borrowed.

During prequalification, the borrower will provide documentation that lays out their financial status. This information is submitted by the prospective borrower and is not verified by the lender until a later stage. This gives the lender an overview of the borrower’s finances and helps determine if a mortgage loan is possible.

Let’s take a closer look at specific aspects that will be reviewed to determine if you prequalify for a mortgage loan.

When to get prequalified

In order to get the house hunting process underway, you’ll first need to know what you can and can’t afford. Some buyers will have their heart set on a property, only to find out later that they won’t qualify for enough financing to cover the cost. That’s why it’s always best to begin your real estate journey by getting prequalified.

By meeting with a lender and determining your borrowing limits early, you’ll be able to know exactly how much house you can afford and narrow down the property that suits your needs.

HOW MUCH CAN YOU AFFORD

Mortgage prequalification documents to prepare

The prequalification process is relatively quick compared to other aspects of applying for a mortgage. By taking a high-level look at your fiscal background, lenders can generally determine how much you’ll be able to borrow, or whether you can afford a mortgage at all.

Here are some of the key aspects your lender will review when deciding your prequalification status:

• Employment history
• Credit score
• Debt to income ratio

Employment history

To make sure you’re capable of repaying the loan, lenders will take a close look at your recent employment history. In addition to handing over pay stubs and proof of salary, your lender might contact your place of business to confirm you’ve had several years of stable employment. Typically, two years of gainful employment is sufficient for prequalification. If you’ve changed jobs recently, your previous employers may be contacted as well.

If you’re a self-employed borrower, you’ll need to submit paperwork that outlines the stability of your business, income levels, the products and services you offer and additional documentation.

Credit score

Your credit score is a three-digit number that indicates the state of your finances and how you’ve managed debt in the past. By providing a snapshot of your current debts and settled loans, lenders can determine if you’re a promising candidate for financing.

A score of 670 or higher is considered “good” by most lenders. With a score in this range, you’ll have a much better chance of being prequalified and eventually approved for a mortgage.

Debt-to-income ratio

One of the key aspects lenders will look at during prequalification is the borrower’s debt-to-income ratio, which assesses whether the borrower’s income is enough to cover monthly mortgage payments.

Debt-to-income ratio is a variable used by lenders to determine if a borrower’s financial situation can afford the added expense of a mortgage loan. It is calculated by taking the total amount of the borrower’s monthly debt payments, divided by their gross monthly income.

Other debt obligations, such as student loans or car payments, will limit how much a borrower can afford for a mortgage loan. An ideal debt-to-income ratio can vary from lender to lender, but equal to or less than 35% is usually considered an acceptable threshold. Less than 20% is considered excellent, while a debt-to-income ratio of greater than 45% is typically the maximum percentage for prequalification.

PREQUALIFICATION VS. PREAPPROVAL

Following prequalification, preapproval is another initial step in building a mortgage loan.

Prequalification indicates that a borrow may be approved for a loan, but it does not give a definitive answer as to whether the loan will be approved. Preapproval, on the other hand, takes a much more in-depth look at an individual’s finances and helps lenders determine how much loan the borrower can handle.

While the borrower’s credit score, employment history and current debts are all provided to the lender during prequalification, these submissions are not verified by the lender until preapproval.

It’s best to seek your mortgage prequalification and preapproval before you begin shopping for a home. Some first-time homebuyers pick out their next home before meeting with a lender. This oversight often leads to unexpected issues, such as a limited borrowing capacity, that can cause the sale to fall through.

By seeking preapproval before landing on a home, borrowers can uncover, resolve or avoid these adverse issues before the mortgage process moves forward. With the knowledge of how much you’ll be able to borrow, you can explore buying options with the certainty that the property is in your price range.

In conclusion

When prospective homebuyers take the first step to buying a home, a Mortgage prequalification provides an excellent place to start.

By analyzing a borrower’s current financial situation and calculating their debt-to-income ratio, prequalification helps set manageable loan expectations and gives buyers the information they need to start shopping for a new home.

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Working With The Team at HomesinSDCounty to assist you in buying or Selling Your San Diego County, CA Home Will Be A Quick, Efficient And Simple Process

As One of the more trusted real estate brokers in San Diego County, CA Area, our mission is to help you make Your home buying or selling process easier, while keeping more of your hard-earned equity in your pocket.

From start to finish we take care of everything so you can live your life while we worry about the details.

• As your Realtor, we aim to guide you through a purchase or sale transaction that is both legally compliant and safe for all parties involved. Your security and satisfaction are our top priorities.
• Our commitment as your Realtor is to help mitigate any major issues that may arise in your new home, sale, or purchase transaction. We’re here to ensure a smooth process and address any concerns along the way.
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Real estate can be a complex and ever-changing industry, which is why the team at www.homesinsdcounty.com  is committed to staying informed and up-to-date on the latest market trends and innovative strategies. Whether you’re looking to buy your dream home or sell for top dollar, we can provide you with the knowledge, expertise, and support you need to achieve your goals. Don’t navigate the maze alone – give us a call today and let us guide you every step of the way.

If you have friends, family or neighbors who are considering buying or selling a home, we at HomesinSDCounty would love to assist them. And please don’t hesitate to call me if there’s anything we can do for you.
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Disclaimer Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Restrictions may apply, contact mortgage lender for current rates and for more information.All information provided in this publication is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. Guaranteed Rate, Inc. does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error free. Some information in the publication may have been provided by third parties and has not necessarily been verified by Guaranteed Rate, Inc. Guaranteed Rate, Inc. its affiliates and subsidiaries do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action.Guaranteed Rate does not provide tax advice. Please contact your tax adviser for any tax related questions.

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